Firm alliances: Creating an international alliance of law firms

24 Aug 2011News

Stephan C. Swinkels, executive director of L&E Global, provides a look behind the scenes at how the global law firm alliance was created

Key takeaway points

Learn from failure. Alliances are popular instruments but are more often than not unsuccessful. Before we started the alliance, we seriously looked into the many reasons why alliances fail and made sure we would avoid these common made mistakes.
Do your groundwork. Starting an alliance for law firms requires solid and exhaustive preparation. We installed a dedicated alliance workgroup with sufficient authority in each founding firm.
Align objectives. The reasons for each firm to join the alliance may be wide ranging and very different but, in the end, the objectives should be aligned. We agreed on a number of objectives and also formulated our mission and vision.
Choose partners carefully. The choice of partners is crucial – trust and respect among the partners is key to the success of the alliance. When selecting new and future partners, we not only looked at the business case but also if there was a personal fit.
Consider structure and governance. Careful analysis of the various types of alliances and the associated corporate structures is vital. We chose the one that served our goals best and then installed a strong alliance board with the authority to make decisions independently. We also installed a supervisory board for advice and control where necessary or required.
Communicate internally and externally. After the launch, we spent as much time in promoting the alliance internally as we did in bringing the alliance to the attention of our clients, peers and the media.

In January 2011, six employment law boutique firms in Europe and the US founded L&E Global. Synergy has been created on several levels between the firms, which have already worked together extensively on multijurisdictional projects. The number of member firms is growing steadily.

In this case study, I reflect upon la, the formation of L&E Global and the first results the alliance has achieved since its launch.

Assessing alliances

Alliances of all forms and sorts are popular instruments, particularly in the legal services industry. Studies show that the number of corporate alliances increases by around 25 per cent a year and that alliances account for nearly a third of allied firms’ revenue and market value.

So popular are alliances that some business writers have referred to this as the era of alliance capitalism. However, the failure rate of alliances hovers between 60 per cent and 70 per cent or, as a recent McKinsey & Co study shows, only half of all joint ventures yield returns to each partner above the cost of capital.

This important data was largely unknown to us when the partners at six employment law firms initiated preliminary discussions about a possible integrated alliance. So, we commenced a thorough analysis that was not limited to law.

The basic definition of an alliance is a formal agreement that establishes a relationship between two or more independent entities. Alliances may range in formality from complex equity joint ventures to looser arrangements whereby firms cooperate over marketing and business development. By extension, a law firm alliance network is simply an assembly of firms connected to each other through various types of these formal relationships.

Initial groundwork

We looked at many examples of law but, rather than just building on what others had done before us, we wanted to create a unique alliance that included all of the components that were important to us, our stakeholders, future members and clients.

To achieve that, we first analysed why each of us wanted to form this alliance. Typical reasons included:

gaining access to new international clients;
gaining market power on a national level;
maintaining an existing strong market position;
acquiring know-how;
pooling resources;
expanding reputations;
sharing marketing projects;
speeding up entry into new markets; and
gaining capacity to help with cross-border matters.

These reasons subsequently became the basis of our mission statement:

“To respond to the increasing demand from international clients to provide one-contact, global, specialised work law advice, with an open ear about competitive and innovative fee structures from which both clients and the firms will benefit. Clients will receive top quality, cost-effective and seamless advice from recognised leading firms. The alliance firms will each become part of a de facto global firm, with access to an expanded client and referral pool and international resources, without increasing overhead costs”.

The next stage of our research was focused on the reality that, after a promising start, many alliances and networks are unable to sustain success.

We wanted to get a clear insight into the most common reasons of failure. It appeared that, when asked why an alliance was dissolved or why it failed, people often mentioned a lack of cooperation and trust, inadequate advance planning, too many detailed negotiations and too little management of the actual alliance as key factors.

Also cited are: a lack of organisational capabilities and resources to manage cooperative relationships; a mismatch in terms of strategy, size or firm culture; a change in strategy from one or more of the partners; the wrong choice of partners; or simply a wrong initial strategy.

Taking into account the abovementioned hazards, it was easy to see why most alliances delivered disappointing results. To avoid this, we decided to focus upon three key elements to the success of every alliance:

joint strategy;
choosing the right partners; and
effective alliance management.

Strategic development

Strategic development involved defining the rationale behind our alliance, focusing on common values and analysing our differences and challenges. It required aligning the alliance’s mission, vision and objectives with the overall strategy.

To be able to formulate our mission, vision and objectives, we started with an industry analysis and the definition of key pressures on individual law firms.

For the industry analysis, we used Michael Porter’s five forces of competition model:

the threat of entry of new competitors;
the threat of substitute products or services;
the bargaining power of customers (buyers);
the bargaining power of suppliers; and
the intensity of competitive rivalry.

Although it is a rather standard and somewhat outdated theory, it produced interesting results when applied to law firms.

Based on the outcome of the industry analysis, we discovered the following key external pressures that each firm recognised.

New competition. All firms felt competition from other major international firms and, increasingly, from in-house legal teams and (non-legal) consultants.
Globalisation. The fact that our clients have become more active internationally requires them to seek the same global focus from their legal service providers.
Client pressures. Due to the financial crisis, in-house legal teams have become more focused on budgets and value. This has forced clients to formulate new guidelines, assemble panels of preferred legal providers, enter into fee negotiations and organise competitive strategies, such as requests for proposals and beauty contests.

Based on the outcome of the above, we formulated our vision: the alliance should provide global coverage through seamless integration, resulting in high-quality services, with the purpose of increasing each firm’s international business. Our mission would be to become the world’s premier specialist provider of cross-border workplace law counsel and advice.

By working together through the alliance, we could showcase our competitive advantages and formulate our value proposition to international clients. Also, we could deepen our expertise through the sharing of substantive legal knowledge and insights into trends and developments in the legal services industry.

Furthermore, we could work more efficiently on international projects, as we would be experienced in collaborating. Finally, we would be more attractive employers, which is not unimportant, as an alliance could be an important tool in the battle for the brightest.

Partner assessment

The second key item we worked on was partner assessment. When determining whom we would include in the alliance and evaluating who could become a future member, we put in place a model to enable us to select the right partner firms.

Through the model, we were able to analyse a potential partner’s overall quality, strengths and weaknesses. We could also understand a partner’s motives for joining the alliance and address resource capabilities.

Regarding the partner selection criteria, we instantly agreed that we would have to limit the alliance to employment law boutique firms. This was important for a variety of reasons. Amongst others, it would give us a differentiating factor vis-à-vis other networks and alliances.

For clients it is a key issue too, as they could otherwise work with large international law firms. We also foresaw issues if we decided to work with full-service firms’ employment law departments. These departments could get squeezed between the interests of their firm’s partners and the interests of their alliance partners.

Most importantly, we chose to only work with employment law boutique firms because we all believed that this was the preferred business model. Each of us had the experience of leaving a large full-service firm and setting up a leading boutique firm. We wanted to work together with like-minded lawyers.

Finally, we agreed that each member should be an independent employment law firm, without membership of other networks or alliances. The firm should have adopted the highest quality standards and be willing to actively contribute to the alliance.

Structural considerations

Alliances can be roughly divided into three categories: learning alliances, business alliances and a combination of the two, the so-called hybrid alliances.

Learning alliances are for firms sharing strong exploration intentions and with limited or no explicit or hidden exploitation intentions. In other words, business is not the key objective: development of knowledge and research are the main reasons for forming this type of alliance.

Business alliances link companies with strong exploitation intentions but with limited or no exploration intentions. Characteristically, the overriding objective of a business alliance is to secure new incremental revenues from the combination of specific assets unique to each partner. Typically, law that focus upon networking and referrals are examples of business alliances.

In hybrid alliances, firms seek to simultaneously maximise opportunities for capturing value from leveraging existing capabilities, as well as from the opportunity to create new value through their joint learning activities.

Law firms have traditionally opted for the business alliance structure, but we were convinced that our alliance should have both the exploring and exploiting elements. Increasing business was one of our key objectives but, on the other hand, becoming or remaining a thought leader was equally important. It would also make all of the individual offices more attractive firms to work with and for.

Alliances are normally structured as a joint venture, where two or more firms create a legally independent entity to share resources and capabilities to develop a competitive advantage.

They can also be structured as an equity strategic alliance, where two or more firms own different percentages of the company they have formed by combining resources and capabilities to create a competitive advantage.

Another model is a non-equity strategic alliance, where two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage.

In our case, we chose to form a legal entity in which all firms would become equal shareholders, based on the one firm, one vote principle. That way, the alliance would be attractive for both large and small firms.

Operations management

We recognised that a governance process to continually monitor the partnership and keep it on track would be crucial to the short and long-term success of the alliance. With a solid governance structure in place, we would be able to keep track of parties’ objectives, form high-calibre teams focused on key business areas, define each partner’s contributions and measure each partner’s performance.

With the corporate structure in place, we could develop the operations management of the alliance. It was agreed the alliance would be managed by a two-tier board.

The first tier would be an executive board consisting of three directors, one of whom would be dedicated to the alliance on a full-time basis. The second tier would be a supervisory board to advise and assist on material matters.

On the operational side, we installed committees which would be responsible for each business area’s objectives and oversee related cross-functional initiatives.

Marketing and communications

With our strategy and structure in place, we were ready for the launch. We branded the alliance ‘L&E Global, employers’ counsel worldwide’, with L&E standing for labour and employment. The name is international, straightforward and captures the key ideas and intentions of the alliance.

The launch was scheduled for January 2011. Compared to all of our prior preparations, the launch itself was a relatively uncomplicated affair.

Each member firm created its own national communications campaign, as there was no one-size-fits-all approach. We did however coordinate these efforts and work together with national communication managers and consultants.

L&E Global took care of the international launch campaign. The international campaign was based upon three pillars: press, peers and clients.

Around the time of the launch, we gave many interviews and informed the ranking agencies to ensure they were aware of this development too. The result was very positive.

The response from clients was also extremely encouraging. We rapidly received invitations for international pitches from clients which we had only served nationally, as well as from new clients. In a very short period of time, we were able to work on many international projects to high acclaim.

Following the launch, it was essential to keep L&E Global on everyone’s agenda, not only for clients and the media, but internally as well. We decided to invest time and money on selected marketing and PR activities, such as participating in conference panels, writing joint articles, organising roadshows and co-sponsoring events.

The investment all firms made in the preparations paid off. We clearly benefited from the fact that the alliance had a solid foundation and that we were able to immediately focus on reaching our core objectives. Each firm knew exactly what was expected and more than lived up to this expectation. And, as agreed, the larger firms contributed further by making available invaluable resources.

The last element we worked hard on during the initial phase was managing, communicating and informing our internal stakeholders. We learned that although our clients, peers and the public were aware of L&E Global and its objectives, many of our own colleagues were not.

It proved much harder than expected to communicate the message to the more than 750 lawyers in over 50 offices. By recognising this at an early stage, we were able to focus on them and include them in our communications, to ensure all of our offices were ‘living’ the alliance.

Impact and future plans

L&E Global has now been in operation for six months and we are still very much in the initial growing phase.

Fortunately, almost everything worked out the way we had planned or hoped. An important factor was that, before the launch, we had agreed on the mission, vision and objectives of the alliance. That way, all firms knew what was expected from them and how they could benefit from L&E Global from the start. Also crucial was that we had focused upon creating trust between the partners before the alliance was launched.

For the foreseeable future, we have identified three important pillars to focus upon:

integration;
expansion; and
business development.

The integration part will be extremely important. L&E Global can only live up to its mission if we have put all of the right measures in place regarding quality standards and controls; formats, documents and materials; invoicing; and cooperation on marketing matters. It is only by aligning our procedures to perfection that we will be able to meet our objectives, provide high-quality services to clients and provide our stakeholders with the returns they expect.

Regarding expansion, we have no interest at all in becoming a legal directory for employment law firms. We want to be at the locations where our clients want us to be, with the firms that share our standards and values. We are focusing on key economic jurisdictions: growth is not a goal in itself.

The selection process for each new firm is very thorough. Apart from the business side, there also has to be a personal fit. The alliance is much more than a reference on a glossy letterhead. It is a truly active and working partnership.

L&E Global is well underway but, as we are growing, we are also learning every day. Clearly we believe that the benefits of the way we are working on the alliance are great. But, at the same time, we have to keep on working and building upon what we have achieved in order to reach our objectives.

Establishing a successful alliance

Solid preparation is crucial to the success of the alliance. The groundwork should be done by a dedicated working group or committee.
Focus less on the results or immediate gains and more on why and how you will work together.
An alliance is a mid to long-term investment. Do not expect immediate returns.
Analyse your specific niche or practice area based on the ‘five forces of competition’ model or a similar theory.
Define measurement tools to keep track of the alliance’s progress towards its goals.
Before entering into an alliance, create a high level of trust with all alliance partners.
Encourage collaborative behaviour by sharing information on the alliance with all stakeholders. Communicate to achieve the collective goals and advantages of the alliance.
Spend as much time on managing internal stakeholders as on selling the alliance to external stakeholders.
Quick growth can be your worst enemy.
Appoint internal alliance ambassadors – people who will keep the alliance on the agenda in each partner firm.
Create a management team with at least one person dedicated full-time to managing the alliance, very much like the managing partner structure in individual law firms.
Install working groups from across the member firms and make each responsible for a key business area such as expansion, quality control or business development.
As is the case with every network alliance or global law firm, remember that you are as strong as your weakest link.